(Computing the portfolio expected rate of return) Penny Francis inherited a $200,000 portfolio of investments from her grandparents when she turned 21 years of age. The portfolio is comprised of Treasury bills and stock in Ford (F) and Harley Davidson (HOG):

a. Based on the current portfolio composition and the expected rates of return, what is the expected rate of return for Penny's portfolio?

b. If Penny wants to increase her expected portfolio rate of return, she can increase the allocated weight of the portfolio she has invested in stock (Ford and Harley Davidson) and decrease her holdings of Treasury bills. If Penny moves all her money out of Treasury bills and splits it evenly between the two stocks, what will be her expected rate of return?

c. If Penny does move money out of Treasury bills and into the two stocks, she will reap a higher expected portfolio return, so why would anyone want to hold Treasury bills in their portfolio?

	Expected Return		$ Value
Treasury bills	4.5%		80,000
Ford (F)	8.0%		60,000
Harley Davidson (HOG)	12.0%		60,000

(Portfolio expected rate of return)Barry Swifter is 60 years of age and considering retirement. Barry's retirement portfolio currently is valued at $750,000 and is allocated in Treasury bills, an S&P 500 index fund, and an emerging market fund as follows:

a.Based on the current portfolio composition and the expected rates of return given above, what is the expected rate of return for Barry's portfolio?

b.Barry is considering a reallocation of his investments to include more Treasury bills and less exposure to emerging markets. If Barry moves all of his money from the emerging market fund and puts it in Treasury bills, what will be the expected rate of return on the resulting portfolio?

	Expected Return	$ Value
Treasury bills	4.5%	75,000
S&P 500 Index Fund	8.0%	450,000
Emerging Market Fund	12.0%